Health Care Costs Rise Twice as Much as InflationThe New York Times, 9-27-06

Editor's Notes:

The average income of American workers—with a brief exception in the mid-1990s—has been largely stagnant for decades. One—perhaps the—reason is that health care costs have risen during that time much faster than the general inflation rate, and since most employees receive health insurance through their employers, increases in employee compensation have been funneled into health insurance subsidies rather than take–home income.

A widely followed national survey reported yesterday that the cost of employee health care coverage rose 7.7 percent this year, more than double the overall inflation rate and well ahead of the increase in the incomes of workers.

The 7.7 percent increase was the lowest since 1999. But the average cost to employees continued an upward trend, reaching $2,973 annually for family coverage out of a total cost of $11,481.

Since 2000, the cost of family coverage has risen 87 percent while consumer prices are up 18 percent and the pay of workers has increased 20 percent, the survey noted. That is without counting the cost of deductibles and other out–of–pocket payments, which have also been rising.

"The cost trend is moderating but nobody is celebrating," said Drew Altman, president of the Kaiser Family Foundation, which sponsored the survey with the Health Research and Educational Trust. "Businesses and workers are still being slammed year after year by rising health costs."

Employer–sponsored health insurance is a drag on wages–there is no doubt about it. Congress should help fix this problem by equalizing the tax treatment of individually–purchased health insurance, allowing individuals to buy insurance for themselves and their families with pre–tax earnings. Companies could then stop paying for health insurance, and funnel the savings back into wages or other business investments. Health care inflation and stagnant wages, are the by–products of third–party payment of heath care costs.